5% Deposit Scheme 2026: Buy With 5% and No LMI

September 18, 2026

Australian Government 5% Deposit Scheme 2026: How to Buy With a 5% Deposit and No LMI

If you’re saving for your first home, you’ve probably heard that you can buy with just a 5% deposit and skip Lenders Mortgage Insurance (LMI) altogether. It sounds almost too good to be true, so the natural question is: can you really do this, and does it mean you’re ready to buy?

The short answer is yes. Previously known as the First Home Guarantee, the scheme was renamed the Australian Government 5% Deposit Scheme from 1 October 2025. It allows eligible first home buyers to purchase with a deposit of at least 5% without paying LMI, subject to the Scheme’s eligibility requirements, property price caps and participating-lender criteria.

But a 5% deposit is only one part of the picture.

What you can borrow, what you can comfortably repay, whether the property meets the Scheme rules, and what other buying costs you need to cover still matter just as much.

What Is the Australian Government 5% Deposit Scheme?

The scheme is run by Housing Australia and lets eligible first home buyers purchase a property with a minimum 5% deposit instead of the usual 20%. Normally, anyone borrowing with less than a 20% deposit has to pay LMI, a one-off insurance premium that protects the lender if a borrower defaults. It can add tens of thousands of dollars to your upfront costs.

Under the scheme, the government guarantees part of your loan to the lender, so the lender doesn’t need LMI. You still take out a standard home loan and make all the usual repayments. The guarantee simply removes one cost barrier; it isn’t a loan, a grant, or free money.

How the 5% Deposit Works

Say you’re purchasing a home valued at $650,000.

A 20% deposit would be:

$130,000

A 5% deposit would be:

$32,500

This is the deposit component only. You’ll generally need additional funds for costs such as stamp duty, conveyancing and inspections, although eligible first-home buyers may qualify for state or territory concessions.

For an eligible buyer using the Scheme, a minimum 5% deposit may be enough to proceed without paying LMI, subject to participating-lender approval and the property meeting the applicable price cap.

Both the purchase price and the property’s value as assessed by the participating lender must be at or below the applicable price cap. If the lender’s valuation comes in below the purchase price, this can affect how much you need to contribute.

The trade-off is that contributing a smaller deposit usually means borrowing more.

That means:

Higher monthly repayments
More interest paid over time
Greater sensitivity to future interest-rate changes

So the question should not only be:

“Can I buy 5%?”

It should also be:

“Can I comfortably manage the larger loan that comes with a 5% deposit?”

Who Can Use the Scheme?

From 1 October 2025, the Australian Government 5% Deposit Scheme no longer has the previous income caps, which limited it to singles earning under $125,000 and couples under $200,000, and the annual limit on scheme places was removed. In practice, this means more buyers can now access it than in previous years.

You still need to meet the core criteria: be an Australian citizen or permanent resident aged 18 or over, and be a genuine first home buyer. The Scheme also allows certain people who previously owned property but haven’t owned a property in Australia within the last 10 years, as confirmed in Housing Australia’s information guide. You’ll also need to intend to live in the property as your main residence, not as an investment. Meeting these criteria doesn’t guarantee loan approval. Your lender still assesses your income, expenses, credit history, and serviceability the same way they would for any other home loan.

What About Property Price Caps?

Every state and territory has a price cap, and it varies depending on whether you’re buying in a capital city, a designated regional centre, or elsewhere. Currently, Sydney and its regional centres sit at $1.5 million, Melbourne and Geelong at $950,000, and Brisbane, the Gold Coast and Sunshine Coast at $1 million, with lower caps for other regional areas and states. Both the purchase price and the lender’s valuation must fall under the relevant cap, so check the figure for your specific postcode on Housing Australia’s website before you fall in love with a property.

A 5% Deposit Is Not the Whole Picture.

Having 5% saved gets you to the starting line, but it doesn’t tell you what you can actually afford. Borrowing capacity depends on your income, existing debts, living expenses, and the interest rate you’re offered, and it’s entirely possible to have the deposit for a property but not the borrowing power to go with it. The scheme also doesn’t cover every cost: stamp duty (unless a state concession applies), conveyancing, building and pest inspections, and loan establishment fees still need to be budgeted for.

How a Mortgage Broker Can Help

The Australian Government 5% Deposit Scheme is available through participating lenders, but lenders can still have their own credit policies, servicing requirements and loan features.

A mortgage broker can help you:

Check whether you appear to meet the Scheme’s eligibility criteria
Estimate your borrowing capacity
Compare participating-lender options
Work out how much cash you may need for the deposit and other purchase costs
Check whether the property you’re considering fits within the applicable price cap
Structure your loan based on your circumstances

Getting this assessment done before you start seriously inspecting properties can help you set a realistic price range.

Thinking about buying your first home with a 5% deposit?

Before you start house hunting, it’s worth understanding your borrowing capacity, the costs you’ll need to cover and whether the property you’re considering fits within the Scheme’s rules.

SafeHaven Finance can help you understand your options and compare suitable home loan solutions through our lender panel.

Call Payal on 0433 564 936 or book a free consultation.

General information only. Eligibility and lending criteria apply. Government scheme rules, lender policies and property price caps can change. Always confirm your eligibility and the applicable requirements with a participating lender.